Financial forecasting in an age of uncertainty – 5 things you can do

Business forecasting has always been a challenging task for business owners, but with increasing uncertainty in the global economy, the knock-on effects of rising inflation, energy prices and the subsequent cost of living crisis, businesses today are in desperate need of some certainty.

There’s no denying that business bankruptcies in the UK are on the rise, in fact the numbers are record breaking with an eye watering  year-on-year rise of 81% due to end of covid support, soaring costs and weakening demand.

 

What is Financial Forecasting and how can it help?

A financial forecast is an estimate of future financial business performance. It generally begins with an analysis of historical data, including trends in revenue, expenses, and cash flow. The goal is to identify patterns that can be used to predict future financial outcomes. For example, if a company has experienced consistent growth in revenue over the past five years, it’s likely that this trend will continue into the future. Financial forecasting is an important tool for all business owners. In times of unprecedented uncertainty, it can provide valuable guidance for making important decisions.

While the current challenges mean that no one can predict the future with 100% accuracy, there are some steps that businesses can take to improve their chances of success. Here are five things you can do to improve your financial robustness during uncertain times:

 

1.       Look at multiple scenarios.

Scenario planning is a great way to test the implications of your business plans against assumptions around existing and future scenarios. It’s an effective way of focusing in on critical metrics and their impacts on your company’s performance, providing you with the insights you need to make tough decisions quickly and confidently. These agile models will help you to assess the impact of metrics such as revenue, costs, and cash flow.

Clearview allows you to input multiple scenarios and really imagine what’s possible for your business based on varying circumstances.

It’s a good idea to re-forecast frequently- for example, quarterly is good for large operational expenses, or even weekly for cash flow. Planning for multiple scenarios is a great way to pre-empt most of the challenges that can be thrown at any business!

 

2. Incorporate risk into your forecasts:

As a business owner, you are always aware of your bottom line. You know that if you don’t bring in enough revenue, you won’t be able to keep the lights on, let alone pay your employees’ wages.

Be sure to consider all the downside risks when creating your forecasts. This will help you to be more prepared for unexpected events. It’s likely that customers may start to pay you later or key suppliers may stop trading, and so cashflow may become an issue with many negative implications for SMEs.

Once you have a clear view of all the potential risks, then it a good idea to increase your reserves wherever possible and also to review your payroll costs and supplier contracts too.

 

3. Don’t lose sight of your business goals.

You’re in business for a reason. You started out with a dream and every day you’re working towards it. There will always be setbacks whatever the economic weather, so keep visualising why you have a business in the first place. Visualisation boards are a great way to keep you focused and inspired so give them a try.

The current economic climate may have you feeling unsure about seeking investment for your company. After all, why would anyone want to invest in a business when the future is so uncertain? However, there are actually a number of reasons why investing in a business during an economic downturn can be a smart move. For one thing, businesses that weather the storm and come out the other side are often stronger and more resilient than those that don’t.

It’s worth remembering that an economic downturn can present investment opportunities. So, if you’re hoping to gain investment for your company, don’t let the current state of the economy dissuade you – there may be more interested parties out there than you think.

And when the time comes to ask for future investment to propel your business forward don’t forget to prepare well for your pitch and stay focused on achieving your goals!

 

4. Stay up to date with changes in the market

In uncertain times it’s important to remain agile and respond to changes in the market quickly. This includes keeping up with new technologies or changing consumer preferences. You may also need to adjust your forecasts frequently.  There are many organisations out there that can help you keep up to date such as the British Chambers and the UK Government website. As new information arises, don’t be afraid to revise your forecast. The goal is to get as close as possible to the true state of affairs so that you can make the best decisions for your business.

 

5. Remain realistic

Business owners are naturally optimistic, but when using forecasting models, the most important thing is to ensure that the figures are realistic and achievable. For smaller businesses and SMEs, projected growth can be difficult to determine accurately, however the figures should always be reachable. If projections are unrealistic, then your company will not gain the benefit that clear forecasting provides, such as accurately predicting growth within your business.

 

At Clearview we help businesses get a clear picture of their finances by providing industry leading forecasting software. Our software is different because it’s designed by finance experts to drive business decisions.

Think of Clearview as a virtual financial planner, with accountancy know how – so that you can focus on growing your business. All this comes at an affordable price.

As well as pivotal moments such as an economic downturn, regular forecasting is a great way to better understand the general ongoing financial fitness of your businesses, demystify accountancy AND gain confidence in making robust financial decisions. Is it even possible- that as a business owner, you even start to LOVE managing and forecasting your finances?!